Information and the Existence of Stationary Markovian Equilibrium

Abstract

We describe conditions for the existence of a stationary Markovian equilibrium when total production or total endowment is a random variable. Apart from regularity assumptions, there are two crucial conditions: (i) low information—agents are ignorant of both total endowment and their own endowments when they make decisions in a given period, and (ii) proportional endowments—the endowment of each agent is in proportion, possibly random, to the total endowment. When these conditions hold, there is a stationary equilibrium. When they do not hold, such an equilibrium need not exist.